Ecuador, Ivanhoe Energy to End Contract for Oil Block 20
Published: Aug 25, 2014
By Mercedes Alvaro
QUITO--Ecuador's state-run company Petroamazonas and Canada's Ivanhoe Energy Inc. (IVAN, IE.T) have mutually decided to terminate a contract signed in 2008 for exploration and production of heavy oil at Block 20, located in the Amazon basin.
The minister of nonrenewable natural resources, Pedro Merizalde, said Monday in an interview that the government is in talks with China National Petroleum Corp. to develop the block.
"They (CNPC) are interested. According to the current law we can negotiate directly, but they should provide a pilot plan to look at the feasibility of the development," Mr. Merizalde said.
"There haven't been any negotiations yet, we've only had talks," Mr. Merizalde added. The government plans to start formal negotiations soon.
The pilot plan would address the methodology to produce oil, planned investments and estimated time for development, among other things.
Block 20 is an area of approximately 426 square miles, and located about 125 miles southeast of Quito, in Napo province. It contains the 250-square-mile Pungarayacu heavy-oil field, which was discovered about 34 years ago.
In 2008, Ecuador and Ivanhoe signed a 30-year service contract to develop the block. The contract covered project appraisal and the development of the block, and included construction of a plant to upgrade the heavy oil using HTL technology. The cost of the plant was expected to be between $450 million and $500 million.
In a report Monday by newspaper El Comercio, Ivanhoe said that the company has technical information showing the need for additional exploration work in the block, which is not allowed under the contract with Ecuador.
Ivanhoe officials and CNPC officials in Ecuador weren't immediately available for comments.
The minister didn't rule out that Ivanhoe may be interested in a joint venture with CNPC due to the $74 million investment made and the information they have on the block, "but that decision is exclusively from Ivanhoe."
Currently, the government is carrying out environmental audits to determine the current status of the block.
According to Mr. Merizalde, Ivanhoe decided to withdraw from the project, "probably because of the high costs" given the quality of the crude.
Ecuador produces about 555,000 barrels of crude oil per day, but most of its reserves come from mature fields.
Source: https://www.firstenercastfinancial.com/news/story/59162-ecuador-ivanhoe-energy-end-contract-oil-block-20
Write to Mercedes Alvaro at mercedes.alvaro@wsj.com